Making Business Decisions: Analyzing The Coca-Cola Company\'s Accounts Receivabl

Question

Making Business Decisions: Analyzing The Coca-Cola Company's Accounts Receivable Turnover Ratio

You are considering making a loan to The Coca-Cola Company. The following information is from the financial statements included in Form 10-K for fiscal years 2011 and 2010 (in millions of dollars):

The following information is from the financial statements included in Form 10-K for fiscal years 2011 and 2010 for PepsiCo, Inc. (in millions of dollars):

The following information is from the financial statements included in Form 10-K for fiscal years 2011 and 2010 for The Coca-Cola Company and PepsiCo, Inc.:

Compute the average accounts receivable, accounts receivable turnover ratio and number of days' sales in receivables for Coca Cola and PepsiCo for the fiscal years 2011 and 2010. (Assume that all sales are credit sales. Enter amounts in millions of dollars. Assume a 360-day year in your computations. Round average accounts receivable to the nearest whole dollar and the ratios and days to one decimal place.)

Making Business Decisions: Analyzing The Coca-Cola Company's Accounts Receivable Turnover Ratio

Explanation / Answer

A. Average accounts receivable = (Accounts receivable at the begining of the period +Ending of the period) / 2.   

For Coca Cola , For Pepsi Co,

year 2010 = (3758+4430)/2= $4094 Year 2010 = (4624+6323)/2=$5473.5

Year 2011 = (4430+4920)/2 = $4675 Year 2011 = (6323+6912)/2=$6617.5

B. Accounts Receivable Turnover Ratio = Credit sales / Average Acconuts receivable

   Credit sales = Net Receipts + Accounts Receivables

For Coca Cola, For Pepsi co,

Year 2010 = (4430+35119)/4094 =9.660 Year 2010 = (57838+6323)/5474 =11.721

Year 2011 = (46542+4920) / 4675 = 11.008 Year 2011 =(66504+6912)/6618 = 11.094

C.No of days sales in Receivables= 360 days in a year / Accounts receivable Turnover ratio

Coca Cola($) Pepsi Co($)

Item 2011 2010 2011 2010 A.Average Accounts Receivable($) 4675 4094 6617.5 5473.5 B.Accounts Receivable turnover ratio(Times) 11.008 9.660 11.094 11.721 C.No of days sale in Receivables(Days) 33 37 33 31

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